Trichet advises against pay rises 

The warning came after the EU's annual inflation rate hit a record high this spring, sparking the euro zone's inflation watchdog to raise its central rate last week.

Speaking in the European Parliament on 9 July, ECB President Jean-Claude Trichet said the bank's Governing Council was "strongly concerned" that price and wage-setting behaviour could add to inflationary pressures through "broadly-based second-round effects," the first signs of which, he said, are already emerging in some regions of the euro zone. 

According to Eurostat , euro area labour costs went up by 3.3% in the first quarter of 2008, compared with 2.9% for the previous quarter. In the EU 27, the annual rise was 4.3% up to the first quarter of 2008, compared with 3.6% for the previous one. 

In the current context, "indexation schemes for nominal wages are of particular concern and should be avoided," Trichet argued, asking wage negotiators to not to give in to general pressure.

Trichet acknowledged that the current euro area inflation level - which is now double the EU's target of a maximum of 2% - is indeed "worrying".

According to him, inflationary risks have even intensified and price unstability could further increase due to "unanticipated increases" in indirect taxes and administered prices as well as further rises in commodity prices. 

In a pessimistic statement, Trichet said the current levels could moderate "only gradually in 2009" and thus no immediate improvement was in sight.